Collateral Trust Bond

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DEFINITION of 'Collateral Trust Bond'

A bond that is secured by a financial asset - such as stock or other bonds - that is deposited and held by a trustee for the holders of the bond.

BREAKING DOWN 'Collateral Trust Bond'

If the issuing company were to default on the debt obligation, the debt holders would receive the securities held in trust, like collateral for a loan.

For example, say Company A issues a collateral trust bond, and as collateral for the bond it includes the right to Company A shares held by a trust company. If Company A were to default on the bond payments, the bondholders would be entitled to the shares held in trust.

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